Will Delta Dampen The Recovery?

Date: 07/21/2021
Author: Mr. X

COVID-19 is surging again worldwide, including in countries that already have vaccines readily available. The result is that travel restrictions are returning.

The United States restricted travel with Canada and Mexico to tourism. Hospitalizations are sharply up in many areas of the country, especially California. The CDC reports that the seven-day average of COVID-19 cases rose 70% last week. Over the last two weeks cases have almost tripled. The government is encouraging Americans to avoid traveling to certain countries – including the United Kingdom. COVID-19 cases in Australia are up despite a lockdown order.

After Monday’s collapse, the market quickly recovered lost ground on Tuesday and Wednesday. The prospect of an infrastructure bill, though its passage is by no means certain, is also encouraging the markets. Nonetheless, if the disease is not contained and lockdowns resume fully, the economic damage could be calamitous.

The national media is pushing vaccination on a massive scale. While opinions about vaccination vary among different political subgroups, most political leaders and media figures are urging Americans to “get the jab.” Senator Minority Leader Mitch McConnell added his voice this week, attempting to beat down vaccine hesitancy among conservatives.

However, complaints about supposed misinformation or vaccine resistance can only go so far. The real question is whether current vaccines can combat COVID-19 effectively, especially the so-called “Delta Variant,” the B.1.617.2 strain.

Obviously, this is a fluid situation, but we have some preliminary data on this. One worrying trend is that most vaccines seem to show less effectiveness against the Delta strain. According to preliminary data from New York University researchers using a very small sample size, vaccines from Pfizer-BioNTech and Moderna generated fewer antibodies against the Delta strain than against the original strain. The vaccine from Johnson & Johnson generated about 5.4 times fewer antibodies. This led The New York Times to report that J&J Vaccine May Be Less Effective Against Delta, Study Suggests.

Nonetheless, JNJ was still up slightly on Wednesday. Interestingly, PFE fell, but BNTX and MRNA both posted strong gains (5.89% and 4.48% respectively). Novavax [NVAX] and Inovio [INO] both posted more modest gains.

Experts note that vaccinations are broadly effective, through “breakthrough infections” are inevitable. However, each one of these infections, however rare, will undermine the idea mass vaccination will solve the problem.

Mandatory vaccination, regardless of its political feasibility, isn’t possible in any event until the FDA gives its full approval. Thus far, vaccines from Pfizer-BioNTech, Moderna, and Johnson & Johnson have only received experimental use approval from the FDA. This does not mean they are unsafe but it does mean that government institutions may be on tricky legal ground if they try to mandate the jab. You can’t force something that hasn’t even been fully approved by the government itself.

Full approval would go a long way towards easing vaccine hesitancy. However, the FDA is unlikely to grant it before September or even January if it holds to its usual pace.

One obvious response would be to accelerate approval. Of course, we just saw the results of swifter action by the FDA when it approved an Alzheimer’s disease treatment developed by Biogen [BIIB]. The result was furious media coverage and continuing calls for an investigation into the approvals process.

Full FDA approval of vaccines at this time would be perceived as politically motivated. Rather than dampening vaccine hesitancy, it might accelerate it. For that reason, the FDA should stick to its usual standards.

Still, the true question may not be whether vaccines are approved or even whether the vaccination rate increases. The real question is how effective vaccines will be against future variants.

Already, a so-called “Gamma variant” is spreading rapidly in Illinois, with reportedly six times as many cases in the state as the Delta variant. Will vaccines prove effective in limiting it? It’s far too early to tell – and we don’t know if “Epsilon,” or “Zeta” or whatever other nightmares the future holds will be able to dodge existing vaccines.

Investment analysis is inherently risky. Nothing is absolutely certain. However, one thing I feel comfortable stating is that pharmaceutical companies are going to be creating new vaccines and treatments to try to track down these different variants. Furthermore, as new variants emerge, the thing to watch will be the effectiveness of these vaccines and treatments against each new strain. In the long run, that may be more important than just looking at how widespread vaccination rates are. After all, even a year from now, “fully vaccinated” may mean something entirely different than it does today, with new variants and the possibility of a third “booster” shot already emerging.

It’s always dangerous to predict what the FDA will do, but it seems likely that at least some of the vaccines will receive full approval by early 2022. After that, mandatory vaccinations will likely be forced by many businesses. Resistance to them will be a major issue going into the midterms.

Yet investors should not be distracted by the political debate. The best way to keep a cool head, maximize gains, and minimize loss is stick to the data.

As each new variant emerges, look for reports about the effectiveness of each vaccine against each new strain. Unfortunately, it does not appear that COVID-19 was a temporary pandemic. Instead, it’s a health care challenge that may be with us in some form forever. The ruthless logic of the market is that there will be those who profit from this permanent threat. There is no reason you shouldn’t be among them. However, that requires dampening down enthusiasm that a global economic recovery is inevitable or assuming that the “Roaring Twenties” are truly underway.



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